The US Supreme Court may accept an appeal by Taiwanese computer maker Quanta over whether companies in a supply chain should pay royalties on a licensed patent.
In a sign of how seriously it is taking the case, the Court has asked US solicitor general Paul Clement to help decide if it should accept the appeal over complaints originally filed by LG Electronics in 2000 and 2001.
LG Electronics claimed that the companies had infringed its patents for peripheral component interconnection technology (PCI). PCI is required to transfer data between computer motherboards and peripheral devices.
Intel, the computer chip manufacturer, had signed a licensing agreement with LG Electronics to use the patents. The agreement did not cover companies combining the products purchased from Intel with other products.
A trial court in the Northern District of California ruled in favour of the Taiwanese computer makers in December 2004, having found that the patent claims in all but one of the patents had been exhausted.
The doctrine of patent exhaustion is grounded on the idea that the patent right is exhausted when the patentee is rewarded for disclosing the invention in the market by selling the patented product. The patentee should not be allowed to profit twice (double reward) by re-selling the same product.
However, in July 2006, the US Court of Appeals reversed the ruling and returned the case to the trial court. The judgment stated that the doctrine of patent exhaustion "does not apply to an expressly conditional sale or license".
LG Electronics has now settled with two of the companies – First International Computer and Compal Electronics. But Quanta computer has asked the Supreme Court to look at the case.
"If the Supreme Court were to take the case it would have far reaching implications," Russell Levine, a partner of Kirkland & Ellis in Chicago, told MIP Week.
If taken on it would deal with three important issues: whether additional royalties can be sought from companies at each level of the supply chain; what licensing terms suppliers need to put in an agreement so that customers can use the licensed products without fear of litigation; and what is the best claim drafting strategy for US patent holders to ensure US patents have the highest royalty potential.
Bradley Lytle, a partner of Oblon Spiviak, McClelland Mairer & Neustadt, said "there is a good chance the Supreme Court will take this case", because the facts are straightforward and the Supreme Court has a history of hearing appeals on patent cases after asking the solicitor general for an opinion.
But it is unlikely to make a decision on whether to hear the case until the next term, which begins in October this year. The Supreme Court docketed the case on January 8.
A spokeswoman for LG Electronics said the door was still open to a settlement with Quanta Computer "as long as it brings a sincere offer".
The first four disputed patents were originally filed between 1987 and 1990 at the USPTO by Wang Laboratories, formerly a US computer company. LG Semiconductor filed the fifth in 1994. They are patents 4,918,645; 5,077,733; 4,939,641; 5,379,379; and 5,892,509.
